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What's down: Schools deal

A boost in back-to-school sales was not enough to lift margins for the Saudi retailer Jarir Marketing.

Hadeel al Sayegh

October 07, 2010

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A boost in back-to-school sales was not enough to lift margins for the Saudi retailer Jarir Marketing. The company, which sells books, office supplies and electronics, increased revenue by 23 per cent to 735 million Saudi riyals for the third quarter compared with the same period last year, with net income up 13 per cent for the quarter to 102m riyals. However, gross margins fell by 295 basis points to 17.3 per cent compared with the third quarter last year, with net margins dropping 134 basis points to 13.9 per cent, both below analysts' expectations.

"We believe this was mainly due to an increasing percentage of sales coming from [information technology] and electronics where margins are lower as compared to books, office and school supplies," said Farouk Miah, an analyst at NCB Capital in Saudi Arabia. Mr Miah has a "neutral" rating on the stock, with a target price of 170 riyals a share. It closed yesterday down 0.3 per cent at 160 riyals. Sales were up 23 per cent compared with the third quarter last year, to 735m riyals.

The company enjoyed its highest sales in seven quarters as a result of an increased store count in the third quarter, up to 28 stores from 26 in the same period last year. It also benefited from the important back-to-school season falling in the third quarter this year. Most schools started closer to the fourth quarter last year because of Ramadan. "This will lead to year-on-year growth for the fourth-quarter sales being lower than usual as it will not contain Ramadan, as compared to the fourth quarter last year," Mr Miah said. "Therefore, despite the positive surprise on this quarter's sales, given the negative seasonality impact expected in fourth quarter, coupled with the ongoing margin contraction, we remain cautious on the stock."

Jarir accounts for almost 50 per cent of the Saudi consumer electronics market. According to a recent study by CB Richard Ellis, overall retail sales in the kingdom should climb sharply to US$125 billion this year, from $75bn last year. halsayegh@thenational.ae

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Anghami
Started: December 2011
Co-founders: Elie Habib, Eddy Maroun
Based: Beirut and Dubai
Sector: Entertainment
Size: 85 employees
Stage: Series C
Investors: MEVP, du, Mobily, MBC, Samena Capital

Whiile you're here

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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